Emissions Trading Scheme: Plans for revamp to be released

The draft plan for the Emissions Trading Scheme is expected to be released by the government today, with the aim to incentivise greater emission reductions instead of just planting trees.

The ETS scheme is a government-run market where polluters buy credits for what they emit.

The idea was that the prices would rise over time, incentivising firms to innovate and pollute less.

But under the current settings, firms can buy credits from tree planting for cheaper than actually cutting back on pollution.

The Climate Change Commission has said the ETS in its current form is a threat to achieving the country’s reduction targets.

The government wants public feedback on its plan, due to be released at 10.30am, as well as on how to treat permanent forests planted in order to sell credits on the scheme.

What is wrong with the ETS?

New Zealand’s Emissions Trading Scheme is an outlier in that it does not differentiate between reducing emissions, ie not emitting the gas in the first place, and reductions from trees absorbing and storing carbon.

It also allows unlimited amounts of units generated from forestry into the scheme.

The Climate Change Commission (CCC) said the current ETS settings set the country up for large swathes of land being planted out, “allowing gross emissions to continue largely unabated”.

The estimated amount of exotic forestry planted last year was 60,000 hectares, double what had been projected.

There was an outcry from rural communities about the economic and social impact of converting large swathes of land used for sheep and beef farming into forestry.

In April the CCC warned against this boom and bust dynamic and said mass planting would eventually lead to huge amounts of credits coming onto the market, which would force prices way down.

Ultimately by 2037 the ETS could cease being a useful tool to drive emissions reductions – the price of carbon would be too low and no longer be an incentive for polluters to change practices.

We would still get to “net zero” emissions, but would still be burning fossil fuels and would have to keep planting ever more trees to offset previous and future emissions.

What could be in the review?

ANZ agricultural economist Susan Kilsby said the scheme could be changed “quite considerably” as a result of the review.

The government review would likely reconsider how forestry was included in the ETS and look for ways to better reward planting of natives, she said.

A cabinet paper about the review from Minister of Climate Change James Shaw said under current settings the ETS was not expected to drive material gross emissions reductions.

Read the document: Cabinet paper about the review of the Emissions Trading Scheme – Office of the Minister of Climate Change (2MB)

It said while increasing tree planting played a role in New Zealand reaching climate targets, there were risks from over-relying on exotic forestry.

Forests could burn or get damaged by storms or pests, which releases carbon back into the atmosphere.

The paper said the current settings also did not incentivise the planting of native forests, which would be crucial as long-term carbon sinks.

While indigenous trees are more expensive and slower growing than pine, they remove carbon over a longer period of time and hold onto it for longer than exotics.

Permanent forestry category work

A redesign of the permanent forestry category was also planned to be launched for public consultation on Monday.

Permanent forests are those planted without the intention to be harvested, and often for the sole purpose of carbon sequestration.

It was likely the current settings would likely incentivise the establishment of a large volume of permanent exotic forests.

At current carbon prices, economic returns under the New Zealand ETS for permanent exotic forests are now significantly higher than sheep and beef farming and production forestry, the main competing land uses.

But a cabinet paper pointed out large-scale poorly managed or unmanaged ‘plant-and-leave’ permanent exotic afforestation carried a number of risks.

They included displacing other productive uses for the land, including farming, which would contribute less to employment, the economy and the social fabric of communities.

Māori were also disproportionately affected – with significant interests in forests.

In 2018, Māori were estimated to own $4.3 billion of forestry assets and some 2200 Māori were employed in the sector.

Māori are major forest owners (about a third of plantation forestry, and it is expected to tip over 40 percent as more Treaty settlements are completed), and make up about 40 percent of the forestry workforce.

Their holdings are often what was left after more desirable land was confiscated, or what was returned to them as part of the Treaty of Waitangi process.

It was often marginal, scattered and difficult to monetise, and some Māori see the ETS as an opportunity to generate revenue from the land.

The cabinet paper said the redesign aimed to help Māori realise aspirations for their land.

And the redesign should also “better support the government’s objectives for forestry, including establishing long-term indigenous carbon sinks”.

In particular, it was hoped it could support transition forests – when indigenous species are encouraged to grow in exotic forests until they eventually take over.